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Opportunity cost of Higher Education: The effects of student debt
The Opportunity cost of Higher Education: The effects of student debt College costs are rising, federal investments are decreasing and it is up to the student to pay the difference. Therefore, more people are opting for student loans to pay for their higher education. These loans have many trade-offs that need to be examined in order to make an appropriate decision with regard to deciding a career for graduates. The incentive of obtaining a loan requiring little to no history of creditworthiness and the possibility of earning more after receiving a degree flocks students of all ages into state colleges or universities. This makes a surplus of college students with high debt and with a shortage of jobs, especially during the Great Recession, in the skilled labor force can have drastic effects on economic growth. In this wiki, there will be information presented to discuss the positive and negative trade-offs of entering college. The main focus of this wiki will discuss the effects on the economy that high student loans have on household and the effects of the loans on economic growth. Therefore, what are the effects of high student loans on college students? Fun facts! *Of 20 million that attend College, close to 12 million – or 60% borrow annually to help cover costs. *There is around between $902 billion and $1 trillion in total outstanding student loan debt in the United States today. *.The average student loan balance for all age groups is $24,301. 25% owe $28,000; 10% owe $54,000; 3% owe $100,000; Around 1% owe more than $200,000. * Of the $1 trillion in outstanding student loan debt, approximately $85 billion is past due. * Nearly 30% of college students who took out loans dropped out of school, up 5% from last decade. * 48% of 25-34 year-olds say they’re unemployed or under-employed. * 70% say it has become harder to make ends meet over the past four years. * In 2010, people ages 25 to 34 with bachelor's degrees earned 114 percent more than did those without high-school diplomas. *College graduates earned 50 percent more than high school graduates, and 22 percent more than did those with associate degrees. *The median income for young adults with a bachelor's degree was $45,000, and with an associate degree, $37,000. Statistics Different loan types Federal Stafford Loans: Available to both undergraduate and graduate or professional school students. Federal Stafford Student Loans are a good, low-interest loans. Offered by a direct loan program and can be subsidized based on need Federal Perkins Loan: Available to both undergraduate and graduate student with high financial need. Loan can be canceled if participate in high-needs field or volunteer services. Federal Parent Loan for Undergraduate Students Loans (PLUS Loans): Available for graduate school students and parents of dependent undergraduate students. Usually covers the the cost of attendance that isn't covered by another type of aid. Interest begins to accumulate after the first disbursement is made. Private Student Loans: Alternative to federal loans, they are normally offered by banks. They tend to be less flexible and potentially costly if not scrutinized careful within the fine print. Every loan from each companies is different and requires careful examination to determine what are the the interest rates, fees and other supplementary cost. Student Loan Consolidation: Allows student loans to be payed at the same time per month. This will lead to a lower interest rate but locks in that interest rate and doesn't change when interest rates decrease. Loan options Incentives for a College Degree #Bachelors degree earns at least $570,000 more than a high school diploma. #The total revenue of a bachelors degree student is over a million dollars. #On average, a four year degrees is equivalent to an investment that returns 15.2% per year. #College graduates are healthier, live longer lives than high school graduates, and have higher job satisfaction. #College Graduates unemployment rate maxed out at only 5.1% during the Great Recession compared to 20% of high school graduates. #Monthly payments increase credit rating. Best place to invest $100,00? In your education Some Positives for Student Loans Negative Trade-off of Student Loans for the Economy *Hurt the middle class, which is key to a thriving economy. *Spending money on loans means less money is being spent on commodities like homes, cars, clothes, and food. *According to Adam Levin, a new certainty in life added to death and taxes is student loans. *High student loans hurt the housing sector. *#Nearly 6 million students between 25-34 live with their parents which is an increase of 4.7 million from 2007. *#High student loan debt, according to the National Association of Home Builders, "impair the ability of recent college graduates to qualify for a loan." It harms their debt-to-income ratio which is an important factor for decisions about creditworthiness for a mortgage. *#First time home buyers normally rely on savings to fund down payments but high debt makes it hard to accumulate any savings.http://www.foxbusiness.com/personal-finance/2013/06/04/college-loans-hurting-middle-class/ *#First time home buyers' share is only 30 percent when compared to average levels of 40%. *Risk the creation of new businesses by young entrepreneurs #For young entrepreneurs, there is a need to invest capital to develop their small business but student loans divert the money from their business to the student loans. #In a a survey by the Young Invincibles, 80% of students with loans were unable to start a business because they were denied a loan. *Hurts Retirement #AARP states that increasing debt may end up with delaying retirement. #Many families would have helped pay for students college expenses but recently these families have been forced to limit their help which subsequently makes parents invest less in retirement. #Students, recently, have been showing a decline in participating in employer-sponsored retirement plans which leads to a loss of growth in those critical years * Hurts Health Care,Teaching, and Rural Areas # A high demand for primary care physicians is expected by 2025 but the high debt burden can impact a medical students choice of going into primary care, with comparatively less benefits, but rather enter a more financially benefiting specialty. #Teachers with private loans typically have low starting salaries and slow growth over time so the loan becomes part of their life. #The comparatively low income in rural areas to well developed areas drives students away from those areas because of their loan and creates a shortage of skilled professionals in these areas. Housing, new business, retirement, skilled labor decrease. Middle class key to economic growth Some Solutions for Debtors *Income based Repayment (IBR) is a serious alternative offered by the government to help students pay off their loans #It is available to all student loan borrowers with federal loans who have high debt relative to their income. #The program caps out monthly payments depending on income and family size. #If interest rates are too high, the Government will pay off the interest for three years. (but you will be responsible for the interest after that duration of time) #If you have paid for 25 years, the loan will be cancelled. #Count toward the 120 payments that are needed for Public Service Loan Forgiveness. *Pay As You Earn PAYE Program: #Eligible for student who fall into financial hardship. #Lowers montlhy payment. #Loans will be cancelled in 20 years. *Public Service Loan Forgiveness (PSLF) can cancel the loan after certain criterea are met. #For public service employers who have made 120 payments on time. #The loans need to be from the federal government. #Private, non profit but provide essential services to the public like law enforcement, public health, public education and much more are also eligible. *Declaring Bankruptcy: eligible if #The debtor cannot maintain a minimum standard of living. #The low income state will continue for a long time. #The debtor has tried to pay back the loan. Income based Repayment of student loans Pay as you earn Public Service Loan Forgiveness Program Bankruptcy Solutions for the future There are many possible solutions that can be pursued in order to help college minded students make correct decisions about their financial future. #Improving financial literacy by establishing a financial class in high school as requirement for graduation which will teach students about interest, credit, and the monthly payment process. #Forming a website that states all the facts about a college with emphasis on job outlook after college. #Increasing awareness and advisement about taking loans and the financial strain they may place on you. #Lower profit margin made by the government from student loan debt. President of SLA's advice Making profits off Student loans Final Analysis The information found above brings out the fact that the benefits of a college education is superior to a high school degree both economically and socially. The impact of debt on students has negative consequences but are worthwhile in the long run. It is relative on the amount of debt accumulated by students and the potential income they can make after graduating. When the debt to income ratio is high because of a failure in the school in providing a lackluster education or when loans are taken from private companies with high interest rate, the fault lies in the advisers of the student. In the case when there is a shortage of demand for skilled workers, it makes the labor force weak and subsequently harder for recent graduates to pay off their loan. However, there are many options available for students to help finance their loans and pay them back or to get them cancelled. Nevertheless, the impact of the debt takes an effect on economic growth of the economy. It prevents money from entering the economy and the creation of businesses. This will lower the economic growth of the economy and in times of recovery, like from the recent recession, it may take longer to regain economic prowess. Category:Browse